As the global energy transition progresses, the latest Global Energy Perspective 2024 report by McKinsey & Company offers a comprehensive view of what lies ahead. Over the past nine years, since the landmark Paris Agreement, there has been significant progress in the global energy landscape. However, the transition to cleaner energy sources is now facing new challenges. Rising costs, growing complexity, and technology hurdles mark this new phase. Meeting the goals of the Paris Agreement will require urgent and accelerated action. The shift to clean energy needs to be managed alongside concerns about affordability, energy system resilience, and energy security amidst a fluctuating global economy.
The report provides a data-driven outlook on energy demands and offers insights into how different sectors and fuels might evolve. It includes a detailed demand forecast for 68 sectors and 78 fuels along a 1.5°C pathway, as outlined in the Paris Agreement. Three different scenarios have been created this year to reflect the current global conditions, including geopolitical changes and economic fluctuations. The main question addressed is how to make significant progress toward net-zero emissions and mitigate the worst impacts of climate change.
Our analysis shows that global emissions will remain above the 1.5°C pathway through 2050, even if all countries meet their current commitments. Emissions are expected to rise until around 2025 under all scenarios, mainly due to increased energy demand and the continued use of fossil fuels. While emissions are projected to decline by 2050, they will still be above net-zero targets. Economic factors, such as the decreasing cost of low-carbon technologies like solar power and electric vehicles, will drive this decline. Policy and regulations will play a crucial role in supporting the adoption of these technologies.
Despite the projected decrease in emissions, global temperatures are expected to rise above 1.5°C by 2050. The report outlines different scenarios with varying temperature increases, from around 1.8°C in the Sustainable Transformation scenario to about 2.6°C in the Slow Evolution scenario.
Global energy demand is set to grow by 11 to 18 percent by 2050, with emerging economies driving most of this increase. Countries in the ASEAN region, India, and the Middle East will account for a significant portion of this demand growth. In contrast, energy demand in mature economies, including the US and Europe, is expected to flatten in the short term. The challenge will be to meet this growing demand with a mix of renewable energy sources, fossil fuels, and possibly nuclear power.
Electricity consumption is expected to double or even triple by 2050 in some scenarios. This growth will be driven by new sectors like data centers and electric vehicles. Artificial intelligence and cloud computing will significantly boost electricity demand, with data centers potentially consuming up to 4,500 terawatt hours (TWh) of global electricity by 2050. Green hydrogen is also expected to grow, but its consumption will need to increase significantly to meet future energy needs.
Renewable energy sources are projected to make up a substantial portion of the power mix by 2050, with solar and wind continuing to grow rapidly. However, the growth of technologies like hydrogen and carbon capture remains uncertain due to high costs and limited policy support. Emerging economies have an opportunity to build renewable-based energy systems from scratch, potentially avoiding some of the constraints faced by developed regions.
Challenges remain in building and maintaining a renewable energy system, including power pricing and ensuring system firmness. The intermittency of renewable energy sources and the need for firming capacity, such as gas or battery storage, could make power more expensive. Policy and regulation will be crucial in addressing these issues and ensuring that renewable energy systems are economically viable and can meet demand.
Fossil fuels will continue to play a role in the energy system, although their share will decrease. They will help meet energy demand and provide firming capacity for renewables. Investment in fossil fuels is expected to continue for the next decade to keep up with global energy demand.
Significant grid infrastructure investment will be needed to support electrification. Transmission and distribution investments may need to grow threefold by 2050 to handle the increasing share of renewables and avoid grid congestion. This increased investment could lead to higher electricity costs for consumers.
The pace of the energy transition will be affected by various factors, including the availability of a skilled workforce and the readiness of new technologies. In Europe and the US, the deployment of some technologies may fall short of 2030 targets due to concerns over project economics and commitment. Despite supportive policies and announced investments, the transition to clean energy faces challenges that need to be addressed to meet net-zero goals.
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